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Business

KDDI's broadband deal seeks clout with households

Buying Biglobe could help Japanese telecom scale up e-commerce services

KDDI aims to expand the economic zone around its "au" mobile communications brand.

TOKYO -- KDDI's takeover of broadband company Biglobe is about more than increasing its share of the Japanese market for fiber-optic internet connections. The Japanese telecom group seeks fertile ground in the provider's base of family customers to grow new businesses like mobile payments and insurance.

KDDI said Thursday it will purchase all of Biglobe from private-equity firm Japan Industrial Partners next month for about 80 billion yen ($700 million). Buying the country's fourth-ranked provider of fiber-optic connections will catapult seventh-ranked KDDI all the way to No. 2.

KDDI's fiber-optic subscriber count will almost triple from about 1.3 million to around 3.7 million, giving it a 13% market share. Only NTT Communications will stand larger.

Biglobe spun off from NEC in 2006 and was acquired by Japan Industrial Partners in 2014 for about 70 billion yen. Its brand and portal site will live on after the KDDI acquisition.

In the zone

The broader aim of the deal is enlarging the mini-economy that KDDI is trying to build around its "au" mobile communication brand.

The company's e-money service, au Wallet, lets people pay for everyday shopping, electricity, insurance and more on their smartphones. KDDI profits from transaction fees and margins. Owning Biglobe could help KDDI market this service as a payment option for households as well as individuals.

KDDI will make au Wallet available to Biglobe subscribers after the takeover. Tapping into the new subsidiary's customer base will create exposure to a broader range of age groups. When it comes to everyday shopping, for instance, families often buy products that singles do not -- like diapers and denture cleaners. The same goes for insurance.

All told, KDDI aims to expand the value of transactions in what it calls the "au economic zone" to 2 trillion yen by the year ending March 2019.

Making connections

The acquisition also marks a step toward business moves in the "internet of things," the emerging field of connected devices. KDDI has identified connected cars and homes as two priority areas. It is partnering with Toyota Motor on the former but has made little progress on the latter. Biglobe's 2.4 million-plus subscribers provide a ready-made target for IoT-related residential services.

Japan Industrial Partners had also approached Nippon Telegraph & Telephone and SoftBank Group as potential buyers for Biglobe, only to be turned down. The internet service provider business model is "finished," a SoftBank executive declared. Indeed, internet usage has gone mobile, with smartphones replacing personal computers as the browsing device of choice, since broadband's heyday in the years around 2000.

Yet KDDI showed a keen interest in Biglobe from the start. That is because President Takashi Tanaka is anticipating the "post-smartphone age" that he sees coming when smartphone subscribers start to decline in the 2020s. 

KDDI may double down on broadband with another acquisition. Late-stage negotiations are underway on buying eighth-ranked Japanese internet service provider Nifty's retail business from Fujitsu. That would bring its fiber-optic subscriber base roughly even with that of the NTT group.

And more deals are likely to come. KDDI is budgeting 500 billion yen over three years for mergers and acquisitions to grow the au economic zone.

(Nikkei)

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